Eurobond billions: The international side of story

What you need to know:

  • According to the Treasury, all these monies were deposited in an account designated as a Sovereign Bond Deposit Account at the Central Bank of Kenya.
  • Like the government, the IMF also resorts to adjusting domestic borrowing downwards by Sh120 billion.

The Auditor-General was quoted as saying: “Investigations into the receipts, accounting and use of funds related to the Sovereign/Euro Bond are still ongoing and the accuracy of the net proceeds of Sh215,469,626,035.75 is yet to be ascertained.”

What is Auditor-General Edward Ouko still investigating? The transaction trail of the Eurobond proceeds is not long and it is not complicated.

According to the Treasury, all these monies were deposited in an account designated as a Sovereign Bond Deposit Account at the Central Bank of Kenya.

The information we have indicates that this account ought to have only nine transactions.

On the deposit side, this account ought to have only two transactions, one for the balance of the primary issue, and one for the tap sales.

After considerable public pressure, the Treasury posted on its website seven memos from the National Treasury that it claims were used to transfer all the money from this account to the Exchequer account.

It stands to reason that authenticating nine transactions should not be that complicated or take so much time.

The disclosures regarding the receipt of the tap sales are credible.

This begs the question as to why the Auditor-General qualifies the whole amount as opposed to only the $998 million (Sh101.1 billion) balance of the primary issue.

Five months ago, Mr Ouko told Parliament that he was sending forensic auditors to London and New York to authenticate the information provided by the government.

I have heard that the Auditor-General has been stopped from doing so by our government.

I have also heard that the US counterparts, and the New York Federal Reserve, in particular, have been uncooperative.

With this information, we can surmise that Mr Ouko has not obtained the disclosures that would enable him to authenticate the nine transactions in the so-called Sovereign Bond Deposit Account.

Readers who have followed this scandal may recall that the document that the Treasury provided as proof of remittance of the $998 million (Sh101.1 billion) had the lower part redacted.

The authenticity of the seven memos purported to have transferred the money is also questionable.

We have to conclude that the Sovereign Bond Deposit Account does not look like what the government has claimed it to be.

It stands to reason that the Auditor-General has been blocked from auditing this trail because the money in contention was not deposited there.

One of the difficulties that the government has had to contend with is how to account for the Eurobond proceeds it did not spend and still balance its books.

Initially, the Treasury had managed to do this by adjusting its financial year 2014/15 domestic borrowing downwards from Sh251 billion to Sh110 billion so as to accommodate Sh140 billion of Eurobond proceeds that it needed to show as having been carried over from 2013/14.

This adjustment is contradicted by information from the Central Bank on government domestic financing operations.

It also does not tally with the interest cost that the government paid on its domestic borrowings for the year.

The International Monetary Fund (IMF) is the global custodian of monetary and public finance statistics.

In several recent reports, it has produced an account of the Eurobond different from and even more confounding than the Treasury.

The organisation’s reports show that the primary Eurobond issue was borrowed and spent in 2013/14.

This is, of course, not the case because we know that the money was received in the last week of that financial year, and was, in fact, not drawn until the first week of July, which falls in the 2014/15 financial year.

But this backdating also creates a problem of balancing the books.

Like the government, the IMF also resorts to adjusting domestic borrowing downwards by Sh120 billion.


The IMF’s reports show the 2014/15 domestic borrowing figure of Sh251 billion, thus contradicting the Treasury’s figure.

In short, the IMF cooks the books one way, and the Treasury, the other.

It was reported that former Prime Minister Raila Odinga followed up this matter and wrote to the managing director asking for an explanation.

I also raised the issue with a senior Treasury official, who though unable to explain the contradictory accounting, stated, nay gloated, that no response would be forthcoming from the IMF.

And sure enough, we subsequently had the IMF deputy managing director come here and state that the government’s accounting was proper as it used “the same method that is used by other countries that raise money in that manner”.

He did not explain why the IMF’s reporting differed with the government’s.

The accounting conundrum does not end there.

In subsequent reports, such as those presented with the current budget, the Treasury has reverted to the Sh251 billion domestic borrowing.

This means that all the accounts showing Sh110 billion domestic borrowing, as well as supporting documentation that includes tables seemingly authenticated by the Central Bank, were cooked.

This is a criminal offence. The IMF’s accounting is even more problematic than the government’s.

The 2013/14 domestic borrowing figure is cast in stone. It cannot be un-borrowed. Even cooking books requires some intelligence.

With Sh251 billion now confirmed, the only way the government’s books can balance is if the Eurobond proceeds were absorbed in development projects. We know there are no projects.

That at least $1 billion of the Eurobond proceeds cannot be accounted for, presumably stolen, has been evident for a long time.

What is new is the baffling international dimension. If this was a one of kind, the US authorities could be given the benefit of the doubt, but it is not.

Four years ago, Mozambique floated $850 million (Sh86.1 billion) to buy a tuna fishing fleet.

The bond was arranged by Credit Suisse and VTB, a Russian investment bank that has been linked by the Panama papers to laundering money for people close to President Vladimir Putin’s family and associates.


Not only was most of the money diverted to military equipment, which is probably what it was meant for in the first place, but it later emerged that the two banks had lent Mozambique another $1.15 billion (Sh116.4 billion), bringing the total to just over $2 billion (Sh202.5 billion).

All this happened under the watchful eye of the IMF.

We are left to muse as to what the deputy managing director meant when he said that our government had accounted for the Eurobond as other governments have.

The Tuna bonds prospectus projected an annual catch of 200,000 tonnes, although at the time its catch was 6,000 tonnes.

Still, very reputable international investors snapped up the bond.

Unsurprisingly, Mozambique went on to default on the bonds, prompting the arrangers to restructure them, but in doing so, Credit Suisse violated the law by failing to disclose the under the table loans to the bondholders — a conflict of interest — and potentially a criminal offence.

The case of Malaysia’s 1MDB is one I highlighted in a previous article.

1MDB is a state enterprise controlled by the Prime Minister and raised $8 billion (Sh810.1 billion) in the international bond markets.

It is now established that $3.5 billion (Sh354.4 billion) was stolen, of which $ 1 billion (Sh101.3 billion) went through the Prime Minister’s personal accounts.

Although the scandal was first broken by the Wall Street Journal more than a year ago, Switzerland was the first country to launch investigations, which exposed the trail of money around the world, including financing of the Hollywood blockbuster The Wolf of Wall Street, starring Leonardo DiCaprio.

Two months ago, the US authorities announced that they were pursuing over a billion dollars in assets bought with 1MDB money.

However, the US lawsuit avoids naming the Malaysian PM, referring instead to a “Malaysian Official 1”.

Questioned by the media about it, the US Attorney-General dodged the question.

Malaysia, and PM Najib Razak, specifically, is a US anti-terrorism ally.

Experts contend that there is enough evidence to pursue criminal charges against the culprits, who allegedly include the PM’s step-son, but the US authorities have limited their action to a civil case to seize the assets.

The 1MDB affair demonstrates the dilemma that the US faces in pursuing global financial crime.

A separate investigation is pursuing Goldman Sachs, the investment bank that arranged the 1MDB bonds.

Goldman Sachs is said to have made $500 million (Sh50.6 billion) in the deals.

Goldman Sachs is also the defendant in a London case where it was sued by the Libyan Government for miss-selling $1.2 billion (Sh121.5 billion) worth of derivatives to their sovereign wealth fund during the Gaddafi regime that went up in smoke during the financial crisis.

Goldman is said to have made $200 million (Sh203 billion).

Goldman Sachs, through its employees, also happens to be the second largest donor to Mr Barack Obama’s first presidential campaign.

And we now know, thanks to Mr Bernie Sanders, that Wall Street is one of Ms Hillary Clinton’s most generous benefactors.

The only inference to be drawn from the non-cooperation of the US authorities is that their information cannot corroborate what the Treasury and the Central Bank have told us, otherwise, it stands to reason that the Jubilee administration would have gone to great lengths to have its narrative corroborated.

President Obama’s charm offensive during his recent visit to these parts was ample demonstration that his administration will do whatever it takes to shore up its security interests, including flattering the Ethiopian Government as a democracy, which he will have a hard time living down in the light of the regime’s ongoing brutal suppression of political dissent.


You're all set to enjoy unlimited Prime content.